Tax Research Memo

Anonymous
timer Asked: Jun 6th, 2018
account_balance_wallet $25

Question description

I was assigned to write a Tax Memo for my University. I have done one by myself but I would like some one to revise for me and maybe rewrite it using better Grammar. You will be assigned to make proper correction to make my paper look clearly written, coherent, and relevant. Citation need to be improved since I believe that I not citing properly.

If you don't know about the topic please don't waste your time and mine. I have had a bad experience with a writer in another website that had not idea of the topic.

I will need proof of Plagiarism if possible please. Need to turn it by Friday 11:00 Am.

Security -Systems Tax Research Memo To: Clients From: Maykel Rubio cc: Professor Martin Scheckner Date: June 2, 2018 Re: New Business Entity INTRODUCTION: As part of our last meeting in office, I was assigned to support you with valuable information on what is the best way to organize your future Florida State official entity. In order to respond to yours inquires, I have made an intensive research through the tax code, regulations and official advice articles, which I would like to divulge to all of the participants in this new venture. Notice that, upon establishment of a new business there are two fundamental aspects to be considered which focuses on tax and non-tax considerations. Getting to know the advantages and disadvantages on how to form a business is very important for future decisions making. Through this memorandum I will document to my clients my interpretation and opinion on some of the foremost issues that may arise on each individual and what is best for all participants. I will refer to each participant situation independently and as a whole for the best benefit of the new organization. FACTS: - Based on facts provided by clients. ISSUES: This tax memorandum will address multiples issues that concerns to each individual in this project. For instance: 1. Different forms of business entities that could be structure under the Florida Department of State Division of Corporations. 2. After the research what type of entity structure do I suggest my clients to elect based on specifics goals, needs and requirement of participants. 3. Legal documents that need to be written upon formation to identify distribution of ownerships and their position in the new entity. 4. Flexibility on the entity elected. 5. Positive and negative tax consequences information for the entity suggested. 6. Inconveniency if individual’s ownership interest is owned by any entities that they own. 7. Income or losses allocated within the participants. 8. What tax form must be filed and their due dates. 9. How modifications made by the new tax law will affect the new entity and their participants? LAW: 606.03(1) Definitions. —As used in this act: “Business entity” means any form of corporation, partnership, association, cooperative, joint venture, business trust, or sole proprietorship that conducts business in this state.1 Florida State classify business entities as C corporation, S corporation, limited liability company, general partnership, limited partnership and sole proprietorship. Legal regulations and restrictions apply to all forms of entities. For purpose of this memorandum I will focus on LLCs and S corporations which provide better liability protection to their owners while avoiding the double taxation a C corporation entangles. Under Florida Department of State Division of Corporations, a new entity as an S corporation or (LLC) requires filing an article of incorporation or for LLC an article organization, both articles describe the purpose and others details of the company. Although an LLC is more flexible in terms of legal structure than a S corporation, there are other benefits that can be satisfy on S corporation with regard to tax considerations, but to be qualify for S corporation certain requirements may apply. M.R. June 2, 2018 Under the current law I.R.C. §1361(b)(1)(c) an electing small business trust (ESBT) is an eligible shareholder of an S corporation. Nonresident alien individuals may not be shareholders or potential current beneficiaries of an ESBT.2 Having revised this code I have concluded that because one of the participants (Kong Zi) became resident after January 1, they as an entity do not qualify for S corporation status but still qualify for unincorporated business entity (LLC) under the state status, whereas for tax classification they would be treated as a flow-through entity meaning that any income or losses will be pass through their members. In addition, an S corporation cannot be owned by another corporations which is the case (Alberto Nostromo) who is the owner of a S corporation contributing appreciated property, as described in §1361(b)(1)(c)(2).3 I.R.C. §721 nonrecognition of gain or loss on contribution, provides generally that no gain or loss is recognized by a partnership or any of its partners as a result of a contribution of property in exchange for an interest in the partnership.4 This statutory nonrecognition provision applies to contributions of property by partners both at the time of the formation of the partnership and thereafter. (Alberto Nostromo) who is willing to contribute with property in exchange for 16% ownership is not needed to meet special requirements to avoid paying taxes on the capital gains he has realized, instead, he will use his initial tax basis before the transfer which equal to his debt on the property for recording purposes. Otherwise, if he would it have to sale the property under his S corporation; a long-term capital gain tax would be applied to the sale which is taxed at a high rate of 39.6 %. However, he still will be liable for any financial debt he had assumed before transferring such property, refer as a nonrecourse debt unless they (the partnership as a whole) upon formation assume the risk by agreement under legal terms. Partners’ capital accounts are maintained using the accounting rules in section 704(b)5 regulations. I.R.C. §704 (b) regulate capital accounts distributions of income, gain, losses to the extent of the of the partner’s interest in exchanged. U.S. Code § 1061 – Partnership interests held in connection with performance of services.6 Since one of the individuals (Mildred Richmond -Lee) is receiving partnership interest through service some considerations have to be made relating the tax effects for herself and also the partnership. The partnership has given capital interest for her service which is minded by their partners to encourage the partner in performing as an owner. Through capital interest she will be assign to a M.R. June 2, 2018 percentage of the assets in case of liquidation. Mildred’s capital interest received will be treated for purpose of taxation as ordinary income; her tax basis will be the amount of ordinary income she recognizes. The rest of the partners might benefit by deducting the capital interest paid to Mildred for her service. The allocation only relates to those partners not providing services. The aforementioned applies to all participants in the partnership which might be aware on how to proceed with paying for services in exchange for interest. U.S. Code §469 – Passive activity losses and credits limited.7 The owner of a flow-through entity may deduct losses from the entity only to the extent of the owner’s basis in their ownership interest in the flow-through entity. In addition, deductibility of losses from flow-through entities may be further limited by the “at-risk” and passive activity loss limitation, taxpayers can deduct such losses only to the extent they have income from other passive activities. §469(a)(2)(a),8 applies to Mr. Shuthie who has obtained ownership of 23% through a revocable living trust. Since he is not considering his participation in operation of the business, he will be considered a passive income investor and the disadvantage he will have to the rest of the participants considered active investors, is that he cannot upset passive losses generated in a period against income; unless he owns another passive income from other passive investment where he can upset his losses with income from other investments. Otherwise, Mr. Shuthie losses will be hold indefinitely until future generation of passive income or until he sells the such activity where he will be allowed to deduct the passive losses as ordinary losses. To avoid this disadvantage and as per law, he could be considered as an active investor if he records at least 500 working hours for the company per year. Conclusion: After having researched and analyzed each individual interest in this group and their different inquietudes on how to form their new business in the state of Florida; I have determined that the organization would have to be formed as limited liability company. LLC offer to this group the benefit of been treated as flow-through entity, avoiding their qualified participants from been tax twice. Since most of businesses incurred losses during the first few years each member will be able to apply those losses as deduction against their personal income if certain conditions are M.R. June 2, 2018 met. Nevertheless, a partnership agreement must be fill out to identify partners interest in regard to the partnership percentage on entity assets each individual will be entitle to. Also, the agreement must include specifics rights for each partner to receive a share of net assets in case of liquidation and the right to receive profits or losses. In the future and depending on the group expectations and success in business, an election for a C corporation could be have done and if desired could be elect for an S corporation treatment. Under an LLC participant are shield from been liabilities by the business. Note: New modifications have been made by the new tax law recently. This will involve many changes on the way taxation was conducted in priors’ years with respect to limited liability companies. For example, for LLCs one notable provision in the so call Tax Cuts and Jobs Act is the deductions for qualified income by a 20 percent. In Addition, next year members of an entity classified as an LLC will have to pay a surplus tax to Medicare portion of self-employment tax. New law. Generally for tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, the Act adds a new section, Code Sec. 199A, “Qualified Business Income,” under which a noncorporate taxpayer, including a trust or estate, who has qualified business income (QBI) from a partnership, S corporation, or sole proprietorship is allowed to deduct: • (1) the lesser of: (a) the “combined qualified business income amount” of the taxpayer, or (b) 20% of the excess, if any, of the taxable income of the taxpayer for the tax year over the sum of net capital gain and the aggregate amount of the qualified cooperative dividends of the taxpayer for the tax year; plus • (2) the lesser of: (i) 20% of the aggregate amount of the qualified cooperative dividends of the taxpayer for the tax year, or (ii) taxable income (reduced by the net capital gain) of the taxpayer for the tax year. (Code Sec. 199A(a), as added by Act Sec. 11011) For partnership tax years beginning after Dec. 31, 2017, the Code Sec. 708(b)(1)(B) rule providing for the technical termination of a partnership is repealed. The repeal doesn't change the M.R. June 2, 2018 pre-Act law rule of Code Sec. 708(b)(1)(A) that a partnership is considered as terminated if no part of any business, financial operation, or venture of the partnership continues to be carried on by any of its partners in a partnership. (Code Sec. 708(b), as amended by Act Sec. 13504) For sales, exchanges, and dispositions after Dec. 31, 2017, the transferee of a partnership interest must withhold 10% of the amount realized on the sale or exchange of a partnership interest unless the transferor certifies that the transferor is not a nonresident alien individual or foreign corporation. (Code Sec. 1446(f), as amended by Act Sec. 13501) For transfers of partnership interests after Dec. 31, 2017, the definition of a substantial built-in loss is modified for purposes of Code Sec. 743(d), affecting transfers of partnership interests. In addition to the present-law definition, a substantial built-in loss also exists if the transferee would be allocated a net loss in excess of $250,000 upon a hypothetical disposition by the partnership of all partnership's assets in a fully taxable transaction for cash equal to the assets' fair market value, immediately after the transfer of the partnership interest. (Code Sec. 743(d), as amended by Act Sec. 13502) For tax years beginning after Dec. 31, 2017 (subject to an exception for net operating losses (NOLs) arising in a tax year beginning before Jan. 1, 2018, that are carried forward), losses from one unrelated trade or business may not be used to offset income derived from another unrelated trade or business. Gains and losses have to be calculated and applied separately. (Code Sec. 512(a), as amended by Act Sec. 13702) Notes 1 Extracted from the 2018 Florida Statutes. 2 According the code a non-resident individual at the beginning of the year cannot apply for an S corporation. 3 By law a corporation cannot be participant as owner of an S corporation. 4 The code explain that no gain or losses are recognized on property contribution to a partnership. 5 U.S. Code §704(b) makes reference to determination of distributive share. 6 Interest in a partnership in exchange for services M.R. June 2, 2018 7 Passive activity losses and credits as per U.S. code. 8 U.S. code applied to a trust Reference: (2018, June 05). Retrieved from http://www.leg.state.fl.us/statutes/index.cfm? [USC07] 26 USC 1361: S corporation defined. (n.d.). Retrieved from http://uscode.house.gov/view.xhtml?req=(title:26 section:1361 edition:prelim) (2018, June 05). Retrieved from http://www.leg.state.fl.us/statutes/index.cfm?App_mode=Display_Statute&Search_String=&UR L=0600-0699/0606/Sections/0606.03.html (n.d.). Retrieved from https://player.mheducation.com 26 U.S. Code § 1361 - S corporation defined. (n.d.). Retrieved from https://www.law.cornell.edu/uscode/text/26/1361 https://checkpoint-riag-com.ezproxy.fiu.edu M.R. June 2, 2018

Tutor Answer

Ben95
School: UT Austin

Attached.

Security -Systems
Tax Research Memo
To:

Clients

From:

Maykel Rubio

cc:

Professor Martin Scheckner

Date:

June 2, 2018

Re:

New Business Entity

INTRODUCTION:
As part of our last meeting in the office, I was assigned to support you with valuable information
on what is the best way to organize your future Florida State official entity. To respond to your
inquiries, I have done intensive research through the tax code, regulations, and official advisory
articles, which I would like to divulge to all of the participants in this new venture. Notice that,
upon establishment of new business there are two fundamental aspects to be considered which
focuses on tax and non-tax considerations. Getting to know the advantages and disadvantages
associated with each business entity very important for future decisions made. Through this
memorandum, I will document to my clients my interpretation and opinion on some of the
foremost issues that may arise on each and what is best for all participants. I will refer to the
situation each participant independently and as a whole for the best benefit of the new
organization.

FACTS: - Based on facts provided by clients.

ISSUES: This tax memorandum will address multiples issues that concern each in this project.
For instance:

1. Different forms of business entities that could be structured under the Florida
Departments of State Divisions of Corporations.
2. After the research, the type of entity structure I would suggest my clients choose based on
specifics goals, needs, and requirement of participants.
3. Legal documents that need to be filled upon formation to identify the distribution of
ownership and their position in the new entity.
4. The flexibility of the entity selected.
5. Positive and negative tax impacts on the entity suggested.
6. Inconveniency if individual’s ownership interest is owned by any entities that they own.
7. Allocation of income or losses among the participants.
8. Tax form to be filed ...

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Anonymous
Thanks, good work

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